DealBook Briefing: ‘Antitrust Is Law Enforcement, Not Regulation’

Nov. 16, 2017

Happy Thursday. The Justice Department’s new antitrust chief Makan Delrahim laid out the principles that could guide a suit to block AT&T’s acquisition of Time Warner. Also, Emerson Electric raised its takeover bid for Rockwell Automation to $29 billion, or $225 a share. More to come on DealBook. A note to readers: Many of you have written to us about the blue hyperlinks. We’ve heard you and are working on the issue.

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A “Vote to leave” ad on a truck in Westminster, London, in 2016. According to new research, Russian-language Twitter accounts posted messages against the European Union before last year’s referendum in Britain.CreditAdam Ferguson for The New York Times

Lloyd Blankfein wants a Brexit do-over.

Here in UK, lots of hand-wringing from CEOs over #Brexit. Better sense of the tough and risky road ahead. Reluctant to say, but many wish for a confirming vote on a decision so monumental and irreversible. So much at stake, why not make sure consensus still there?

It’s not the first time that the Goldman Sachs chief has referenced Britain’s plans to leave the European Union on Twitter. (See this and this.) But today’s tweet was his most open yet about his unease over how Brexit is shaping up.

This probably won’t make him feel better: The E.U.’s top Brexit negotiator, Michel Barnier, believes that Britain’s only hope for a trade deal with the political bloc is a Canada-style deal that is undeniably inferior from an economic and trade standpoint than what it has now, according to Politico.

— Michael de la Merced

‘Antitrust is law enforcement, not regulation.’

The Justice Department hasn’t sued to block AT&T’s $85.4 billion takeover of Time Warner — not yet, anyway. But its antitrust chief, Makan Delrahim, has laid out the principles that would guide that lawsuit when, or if, it is filed.

In short: He’s not seeking to regulate companies by forcing them to change how they act through what are known as “behavioral remedies.” Instead, companies should be forced to make structural changes — which often means selling significant assets — if the Justice Department has problems with their proposed union or see their transaction blocked altogether.

Our colleague Cecilia Kang was on hand for Mr. Delrahim’s speech, delivered at the American Bar Association’s Fall Forum. Here are the parts of the speech she found most important:

“Like any regulatory scheme, behavioral remedies require centralized decisions instead of a free market process. They also set static rules devoid of the dynamic realities of the market. With limited information, how can antitrust lawyers hope to write rules that distort competitive incentives just enough to undo the damage done by a merger, for years to come? I don’t think I’m smart enough to do that.”

“To be clear, that cuts both ways—if a merger is illegal, we should only accept a clean and complete solution, but if the merger is legal we should not impose behavioral conditions just because we can do so to expand our power.”

The context: AT&T and Time Warner have pushed for behavioral remedies, pointing to Comcast’s takeover of NBC Universal as a model. (One potential starting point that the companies might be open to is an agreement to make Turner content available to other providers on unspecified reasonable terms, Michael has heard.)

— Michael de la Merced

Amazon is a ‘Death Star’ moving into ‘striking range of every industry.’

• “If you’re in the B2C business, if you’re selling anything to any consumer anywhere on the planet, you gotta believe that Amazon is gonna have a look at that opportunity to commoditize you to use scale to serve the public,” Mr. Malone told CNBC’s David Faber during an interview at the Liberty Media annual investor meeting.

• Mr. Malone also said that “it’s way too late” for the cable industry to compete with Netflix. “The only outfit right now that has a chance of overtaking them would be Amazon.”

— Stephen Grocer

What’s next for the Emerson-Rockwell battle?

Now that Emerson has raised its offer for Rockwell Automation, the question is whether we’ll see a big hostile takeover fight break out in the industrial sector.

Here’s what Emerson is offering now: $135 a share in cash and $90 worth of new Emerson shares for each Rockwell share. The new bid is about 60 percent cash, while the last offer was split evenly between cash and stock.

Rockwell shares are up nearly 5 percent, though at $197.51 they remain well below the new offer price, suggesting that investors remain wary a deal will get done. (They’re still at highs unseen in Rockwell’s history.) Emerson’s shares have rebounded Thursday, after initially dropping on news of the offer and now flat.

Now that Emerson has raised its offer for a third time, there’s a question about which other levers are available to bring Rockwell to the negotiating table. It can’t seek to unseat Rockwell directors — the deadline to nominate board members has already passed — so will Emerson bring its offer directly to shareholders?

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CreditStephen Voss for The New York Times

— Michael de la Merced

What do the Kochs want with Time Inc.?

Sydney Ember and Andrew Ross Sorkin of the NYT broke the news last night that Koch Industries has tentatively agreed to invest more than $500 million into Meredith’s latest effort to buy the publisher of Time and People magazines. But what does the private industrial conglomerate — whose leaders are known for backing conservative causes — hope to gain?

It isn’t clear what influence the Kochs would have should Meredith prevail, the NYT reports. But Charles and David Koch have been interested in media investments before, having explored a deal for the business now known as Tronc (including the L.A. Times and the Chicago Tribune) four years ago.

So it’s possible the Kochs are making a purely economic bet here, and they believe a version of the pitch Time Inc.’s management has been making for years: We’re going to use our declining print business to build a new digital business. (Time Inc.’s digital ad revenues passed $500 million last year — a number that Time Inc. execs like to compare to BuzzFeed, which did about half of that in the same time frame.)

World’s largest sovereign wealth fund wants to get out of oil and gas stocks.

“While the central bank said the view was not based on any prediction of future oil and gas commodity prices or the ‘sustainability’ of the sector, the move will be closely watched given the fund’s clout in global equity markets.”

— Amie Tsang

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CreditPhoto by Frank Cancellare/United Press International; Illustration by New York Times

Mr. Peltz and his Trian Partners haven’t won yet — the consumer goods giant may demand a recount — but they have struck another blow for the power of activist investors.

A narrow victory, we suggested, was already an embarrassment for P. & G., which had argued strongly against giving Mr. Peltz even one seat on the board. Actually seating the activist shareholder would be even more humiliating. (Even worse for the company is that its shares rose 2.3 percent in after-hours trading following the news.)

Lex points to a broader question about the electoral integrity of American corporate votes:

Previous mishaps have included Yahoo in 2008 overstating the support for its chairman. T Rowe Price, the asset manager, was disenfranchised in its attempt to intervene in the 2013 sale of Dell after another glitch on recording ownership.

Extra credit: The London Stock Exchange, which is fighting The Children’s Investment Fund about the departure of Xavier Rolet as its C.E.O., shows how not to deal with an activist investor, according to the WSJ.

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Senator Ron Johnson, Republican of Wisconsin.CreditEric Thayer for The New York Times

Storm clouds gather over the Senate’s tax plan.

The House is expected to approve its tax legislation today. But Republicans in the Senate must now deal with even more uncertainty over the fate of their bill.

Opposition from Senator Ron Johnson, Republican of Wisconsin, has considerably narrowed the margin of error for the Senate majority leader Mitch McConnell. He can afford to lose only one more vote — and Susan Collins, Bob Corker, Jeff Flake, John McCain and others have yet to commit their support.

Bob Rubin weighs in: “We can only hope that responsible elected officials will prevent this irresponsible tax plan from being adopted,” he writes in a WaPo op-ed.

The tax flyaround

• That change to the taxation of stock options that Silicon Valley hated is gone. (NYT)

• Lobbyists for smaller trade groups are struggling to be heard because of the speed of the legislative process. (NYT)

• Mark Cuban asserts that a cut in the corporate tax rate wouldn’t change how he does business. (CNBC)

• Check out this fascinating visual breakdown of the House tax bill. (NYT)

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Richard Cordray, the outgoing head of the Consumer Financial Protection Bureau.CreditAndrew Mangum for The New York Times

One bank regulator is tamed, while another may be soon.

The Office of the Comptroller of the Currency was once one of the friendliest regulators in Washington, but after the financial crisis of 2008, it became one of the fiercest. It’s different again under President Trump, according to the NYT.

The changes are happening not by congressional action or a rule-making process, but through the pen of the agency’s interim leader, Keith A. Noreika, who has deep connections to the industry. Among the shifts: making it easier for Wall Street to offer payday-style loans and clashing with the Consumer Financial Protection Bureau.

But changes may be coming soon to the C.F.P.B. after its director, Richard Cordray, said he would step down this month. Mr. Cordray was appointed by President Obama to a five-year term that was to end in July 2018. Under his leadership, the agency has extracted nearly $12 billion in refunds and canceled debts for 29 million consumers — and become loathed by Republicans and industry alike.

Now President Trump can reshape the agency, while Mr. Cordray may run for governor in Ohio, his home state.

We’re still waiting for the Justice Dept.’s move on the Time Warner deal.

Expect plenty of questions for Makan Delrahim, the Justice Department’s antitrust chief, when he speaks at the American Bar Association’s Fall Forum conference in Washington at 11 a.m. (There’s a chance the regulator will file a lawsuit to block the transaction by then, though we’re hearing that’s unlikely.)

In the meantime, the Justice Department has reached out to several attorneys general — nearly 20 participated in an investigation into the transaction — to see if they would join a lawsuit against the Time Warner deal, CNBC reported. (Michael has heard the same thing.) So far, it’s unclear whether any have signed on.

In communications with Capitol Hill, the company has highlighted Trump’s hostile relationship with CNN and suggested a political motive for requests that CNN be sold, one of the people said. The White House has denied involvement in the talks.

Critics’ corner

• Michael Santorelli of New York Law School writes, “The Justice Department should approve the merger and get to work policing the real threats to competition and consumer welfare.” (NYT)

• Tara Lachapelle writes, “The good news for Time Warner shareholders is that there probably isn’t much, if any, downside from here.” (Gadfly)

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Stella Penn Pechanac, a Black Cube employee who is said to have worked on behalf of Harvey Weinstein.Creditvia YouTube

Peek into the bag of tricks used by Harvey Weinstein’s private investigators.

Fake job interviews and undercover agents who formerly worked for the Israeli military. These are among the tools of trade used by Black Cube, the firm hired by Harvey Weinstein to look into the backgrounds of women who had accused him of sexual assault and harassment.

Earlier this month, a former hedge fund employee was flown from Hong Kong to London for a job interview. Around the same time, a current employee of the same Toronto hedge fund was also flown to London for interviews. The company courting them was fake. Its website was fake. There were no jobs to be had, and the woman who set up the interviews was not a recruiter but an agent working for an Israeli private investigative firm.

Has SoftBank muddled Uber’s Valuation?

Masayoshi Son’s conglomerate is set to begin an offer to buy Uber shares, but at two different valuations: about $50 billion for stock bought from shareholders, and $68 billion for new stock. That raises the question of what the ride-hailing giant is actually worth, according to the WSJ.

In other SoftBank news: The company is planning to invest up to $25 billion into projects in Saudi Arabia — the same kingdom that has invested $45 billion in its Vision Fund — according to Bloomberg, citing unidentified people.

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CreditAl Drago/The New York Times

Wilbur Ross had another bad day.

Another publication has followed Forbes in declaring that the commerce secretary is not a billionaire. Bloomberg cut its estimates of his net worth to $860 million from $3 billion.

And three former employees of his investment firm, W.L. Ross & Company, sued Mr. Ross and the firm in New York State Court, according to the WSJ. They have accused the financier of improperly taking at least $48 million in management fees from the general partnerships that oversee W.L. Ross’s private equity investments.

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